You need to understand:
How the arrangement works
Partial novation arrangements usually have two distinct lease agreements that is a lease agreement between either:
- the finance company and the employee for the vehicle
- you and your employee, where the employee separately sub-leases the vehicle to you. Under this arrangement, your employee foregoes the right to receive payments under the sub-lease. This is in exchange for your agreement to accept responsibility for the lease payment obligations contained in the lease between the finance company and your employee.
Another form of partial novation is where you enter into a deed of novation with your employee and the finance company in addition to the original lease, rather than entering into a sub-lease with your employee.
In both types of partial novation arrangements, there is no agreement with the finance company that revokes the head lease.
Where you and your employee enter into a partial novation arrangement where the head lease agreement is not revoked, separate supply is made under each lease agreement.
Accounting for GST
Under a partial novation arrangement, the finance company can claim a GST credit for the GST they paid in the purchase price of the vehicle.
Under both forms of partial novation arrangements, the finance company is making a taxable lease to your employee. The finance company will be liable to pay GST to us on this lease.
Under the sub-lease arrangement, you are the sub-lessee. You can only claim a GST credit for the vehicle you have leased if it is leased in the course of carrying on your business and the supply is a taxable supply to you However, as a general rule, you cannot claim GST credits if you make input taxed sales.
Where the lessor in the sub-lease is your employee or an associate of your employee and the lessor is not registered or required to be registered for GST purposes, the lease made by them to you is not a taxable lease. This means that you are not entitled to a GST credit on the purchase of the vehicle from the lessor.
On the other hand, where the lessor in the sub-lease is an associate of your employee who is registered or required to be registered for GST purposes and the lease is made in the course of their business activities, it will be a taxable lease. You are therefore entitled to a GST credit for the lease. However, as a general rule, you cannot claim GST credits if you make input taxed sales.
Generally, your employees cannot claim GST credits for the vehicle they purchase or lease from a finance company as they are not conducting a business whilst in the capacity of an employee and therefore cannot register for GST.
Associate arrangements vary from case to case. We recommend that you request a private ruling if you need more information.
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Tax invoice requirements
Under a partial novation arrangement the finance company makes the lease to your employee. If the lease is taxable, the finance company must issue a tax invoice to your employee if requested.
The lease from your employee to you will only be taxable where your employee is conducting a business and is registered or required to be registered for GST.
If this is the case, the employee must issue a tax invoice to you if requested.
Find out more
TR 1999/15External Link Income tax and fringe benefits tax: taxation consequences of certain motor vehicle lease novation arrangements
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